Review of Industrial Organization最新文献

This article derives the optimal wholesale tariff that is proposed by the monopolistic manufacturer of a branded product to a monopolistic retailer if the retailer also sells a private label whose quality is unobserved by the brand manufacturer. The focus is on market-share contracts where the manufacturer controls the quantities of both products. To learn the quality of the private label and diminish the retailer’s information rent, it distorts the quantity of the branded product downwards and that of the private label upwards. The manufacturer can control the quantity of the private label if it combines an excess payment with an end-of-year repayment.

The growth of the large, “dominant” digital platforms – as well as increases in national concentration of U.S. industries and average profit margins, and a decline in labor’s share of national income – have prompted calls for a stronger antitrust policy. The Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) have recently responded with a more vigorous attack on mergers and have launched monopolization cases against Amazon, Apple, Facebook, and Google; two of these suits specifically seek divestitures as remedies. The early results of the more aggressive merger policy are not favorable, and the likelihood that court-ordered divestitures would be effective in increasing competition is low if the results of previous monopolization cases are a relevant guide. In addition, two pieces of legislation have been proposed in the U.S. Congress to curb the power of the large, dominant digital platforms. Neither of these proposals addresses the source of the platforms’ dominant positions; they would merely constrain the ability of these platforms to exploit their market positions. One of these bills, however, would require the largest platforms to interconnect with other businesses and, potentially, their rivals. This is a proposal that could result in all of the problems that a similar policy in telecommunications created two decades ago.

After a brief account of my proposed RPI-X incentive regulation for British Telecommunications (BT) in 1983 and for the water industry in 1986, this paper documents my simultaneous resetting in 1993–1995 of the RPI-X price caps for the 12 electricity distribution companies in England and Wales and two in Scotland. I proposed unprecedented price reductions, but the media thought that I should have intervened earlier to tighten the Government’s initial 5-year caps and remove alleged excess profits, and then I should have set even more severe revised price caps than I proposed. In the event, I finally reopened the review and tightened the proposed caps. On reflection, I was trying to implement incentive regulation in the face of an overwhelming media demand for rate-of-return regulation. This account of why my own process achieved such significant price reductions yet was so problematic—and how our regulatory thinking evolved (or failed to) in the light of events and media pressure—may help to explain why incentive regulation has been widely adopted but subsequently much modified, in the UK and elsewhere. It may also provide some insights into how regulation could usefully be developed further to meet the challenges of tomorrow. The paper concludes with some suggested modifications to the regulatory process: particularly to incorporate more negotiation with interested parties in order to get initial agreement, and then to incorporate ongoing appraisal and more rapid adjustment to evolving company and market conditions.

This paper reexamines the equilibrium product choices in a spatial Cournot n- oligopoly on the linear market by considering the case of output that accidentally harms consumers and firms that are subject to product liability. We characterize the resulting spatial pattern in terms of uniqueness and stability. For low levels of the unit cost of accident, central agglomeration is the unique and stable location equilibrium. For a high enough unit cost of accident, multiple equilibria exist: from central agglomeration to partial dispersion (both asymmetric and symmetric). In this case we show that asymmetric dispersion equilibria as well as symmetrical three-variety equilibria are unstable, whereas there always exists a symmetrical two-variety location equilibrium that is stable. Finally, complete dispersion appears as a very specific case that is limited to duopoly and triopoly: For markets with more firms, equilibrium product differentiation involves partial clustering on three varieties/locations.

The fact that Amazon was allowed to acquire hundreds of companies as it rose to become the fourth most valuable U.S. company in terms of market capitalization and a leader in three lines of business has been viewed by some as damning evidence of underenforcement by the United States antitrust authorities. In this article we ask the obvious question: If the 2023 Guidelines had been in place instead of prior guidelines, what effects would they have had on Amazon’s development? To provide an answer, we identify relevant changes in the guidelines and then select for review a subset of Amazon’s 280 acquisitions over the period 1998 to 2022. In our counterfactual, we analyze five horizontal acquisitions, four vertical acquisitions, and two sets of serial acquisitions. We find that the 2023 Guidelines would have broadened the bases for potential challenges and thereby would have increased the likelihood that Amazon would have faced greater resistance from antitrust authorities. The lack of safe harbors, the plasticity of individual Guidelines, and the optionality to challenge mergers under alternative theories would have exposed most of Amazon’s acquisitions to challenge. The lack of meaningful guidance about which individual transactions would have been challenged suggests that going forward enforcer discretion will play a yet larger role. Regarding Amazon’s serial acquisitions of nearly one hundred technology firms, we find that the 2023 Guidelines would have provided multiple rationales for intervention. Therein lies a weakness in the Guidelines and in antitrust policy: the lack of a framework for assessing both the anticompetitive and procompetitive effects of such acquisitions in high-tech industries.

Through time, spatial competition has become the natural environment for studying a number of problems, ranging from product differentiation to mail order versus traditional business, to service provision under various assumptions about the institutional setting. Health economics research has greatly benefited from the intuitions that underlie the Hotelling model and several authors have contributed to the literature on the architecture of the market for health care by proposing models within this framework. In this paper we explore how spatial competition has been used in health economics to improve the knowledge of the mechanisms of the market for health care through the derivation of significant policy implications. One of the most important messages is that in spite of competition, the regulator still should have a central role in the architecture of the market and policies have to be carefully tailored in order to avoid the onset of perverse, undesired effects on quality and welfare.

This article serves as an introduction to the Review of Industrial Organization’s Special Issue commemorating 40 years of incentive regulation. The article summarizes some of the key lessons we have learned about the design and implementation of incentive regulation. The article also identifies questions that remain to be answered.

Hotelling’s model—which is commonly referred to as the “linear city” model—is perhaps the most widely-used model of competition in differentiated products. However, pure-strategy Nash equilibria in prices do not exist unless the firms are located either sufficiently far apart from each other or at the same place. In fact, pure-strategy Nash equilibrium prices exist in only about 15 percent of all possible locations of firms in the linear city. This paper applies the undercut-proof equilibrium concept to solve for equilibrium prices for all possible locations of firms in the linear city.

The 2023 Merger Guidelines devote a section to mergers that eliminate potential competition. This is an important contribution because agency guidelines have not discussed the subject in detail for almost 50 years. The new Guidelines follow the traditional distinction that has been upheld in the courts between a merger’s effects on incumbent responses to perceived potential competition and the potential effects of actual entry. Antitrust enforcement should assess both possible aspects of potential competition in an integrated fashion because harm from a merger occurs not infrequently from the elimination of actual potential competition; and when the elimination of perceived potential competition has an effect, it often occurs along with and as a consequence of the elimination of actual potential competition. Economic studies suggest that the benefits of perceived potential competition are less than some courts have assumed and that the benefits of actual potential competition are greater. Rather than focusing solely on the probability of harm from the elimination of a potential entrant, antitrust enforcement should adopt a sliding scale that takes into account the magnitude of the benefits for consumers or suppliers if entry is successful. Mergers with potential and nascent competitors can be harmful even if the probability of actual entry absent the merger is small.

Disputes about market definition are often regarded to be dispositive of litigated merger cases. Yet the market definition process is illogical—circular at best but actually far worse because it distorts or discards much of the available information on a proposed merger’s effects. Against this background, the 2023 Merger Guidelines present a paradox. On one hand, they double down on market definition through what may be their most important change: tightening and augmenting the so-called structural presumption, under which high market shares are sufficient to presumptively block a merger. The importance of market definition is thereby elevated because one cannot know what market shares to use unless a market is defined. On the other hand, the 2023 Merger Guidelines’ longest segment—on market definition and market shares—demotes the familiar methods (including the hypothetical monopolist test) and expresses a clear preference for the use of direct evidence on a proposed merger’s effects. But direct evidence, as is well known, is a substitute for market definition, not a way to define a market in which market shares can then be calculated. This change thus disables the structural presumption. The analysis here identifies and deepens the resulting conundrum by elaborating the disconnect between the proper economic analysis of mergers and the market definition paradigm.